Legal AlertsJun 8, 2017

The Department of Labor’s decision this week to rescind two of its memos from the Obama administration regarding joint employer liability may be a hint of what’s to come under the new White House. The repealed memos significantly broadened the definition of who is considered an employee and the scope of joint employment liability under the Fair Labor Standards Act. U.S. Secretary of Labor Alexander Acosta announced the 2015 and 2016 memos would no longer serve as guidance for either the misclassification of employees as independent contractors or for joint employment liability.

The 2015 memo defined employees broadly. Traditionally, courts applied an “economic realities” test that looked at various formal factors indicating employment. The memo instead suggested that courts view the factors in light of one central question: whether the worker is really in business for him or herself or if they are economically dependent on the employer.

The 2016 memo built on this interpretation in the context of joint employment liability. It stated that there is joint liability when two conditions are met. First, there must either be a cooperative relationship between two employers or a subcontracting relationship. Second, the employer must be able to exercise control over the employee. Joint employer liability would be established under the memo’s terms guidelines if both of these conditions were met.

Although the Department’s rescission may seem like a drastic change in labor law, the memos were just an interpretation of the law by a government agency — they were not the law. In announcing the decision, Acosta noted the agency will “continue to fully and fairly enforce all laws within its jurisdiction.”

The Department’s decision to rescind the guidelines may be indicative of the direction it will go under the Trump administration. By repealing guidelines that broadened employer responsibilities, the Department is signaling a support for a narrower interpretation of the Fair Labor Standards Act.

Even if the Department continues on this path, it cannot reverse two recent rulings from the U.S. Fourth Circuit Court of Appeals expanding joint employer liability. In Salinas v. Commercial Interiors, the court ruled that general contractors and businesses playing a role in employer working conditions are jointly liable. An employer needs to be not “completely disassociated” from the worker’s employment and have a “substantial role in determining the essential terms and conditions for employment” to establish joint employment liability.

The court expanded on this understanding of joint employer liability in Hall v. Direct TV, LLC. There, it clarified that a business does not need “unchecked — or even primary — authority over all — or even most — aspects of a worker’s employment” to qualify as a joint employer. Instead, the business only needs to play a role in establishing key terms and conditions of the worker’s employment to qualify.

Both of these Fourth Circuit opinions used the Department of Labor’s regulations in their analysis of joint employer liability. But neither of the opinions used it as their sole justification. So the impact of this repeal on how the Circuit and other courts handle these types of cases remains unclear.

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